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On April 1, a state court judge in Los Angeles ruled that the California law (AB 979) mandating publicly traded companies include people from underrepresented communities on their boards violates the California Constitution. We initially reported on AB 979 here, noting that it was the first law of its kind in the US and was the second time California sought to mandate diversification of public company boards through legislation. In 2018, the first piece of California legislation (SB 826) aimed at increasing gender diversity; in 2020, AB 979 sought to increase diversity from underrepresented communities.

AB 979

The 2020 law requires publicly held corporations headquartered in California to include at least one person on their boards from an underrepresented community by the end of last year, with additional appointments required in future years. People from underrepresented communities are defined as anyone who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who self-identifies as gay, lesbian, bisexual or transgender.

Under AB 979, the California Secretary of State must report annually on companies’ compliance with the law and may impose fines of $100,000 for an initial violation and $300,000 for each subsequent violation.

Continue Reading California’s Board Diversity Law Struck Down in State Court, But Movement for Inclusion and Diversity on Boards Persists

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Many thanks to our colleague in London, Julia Wilson, for co-presenting.

 

An influx of high profile whistleblowing cases have made headlines in recent years, and claims (and awards) are on the rise. At the same time, more defined and greater protections for whistleblowers are coming into play in the US, UK and European Union.

It’s essential that multinational employers be aware of the whistleblower regulations proliferating across the globe and the notable differences between regimes.

In this Quick Chat video, our Labor and Employment lawyers provide an overview of the changing landscape of whistleblower protections in the US, UK and EU.

Click here to watch the video.

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New state and federal limits on post-employment restrictive covenants mean employers must stay on top of more than just vaccination policies or the logistics of office reopenings. The swath of new and on-the-horizon legislation aimed at limiting the enforceability of post-employment non-compete agreements deserves employers’ attention too. Part One of our blog post series on restrictive covenants addressed the intersection of remote work and state non-compete laws. Now, in Part Two, we summarize recent updates to state non-compete laws, pending state legislation that could impact non-competes, and new federal-level activity aimed at limiting non-competes.

State Updates

  • Colorado

Colorado recently raised the stakes for violations of its non-compete law. Effective March 1, 2022, under SB 21-271, a person who violates Colorado’s non-compete statute commits a class 2 misdemeanor.

Colorado’s non-compete statute (C.R.S. section 8-2-113) voids agreements that restrict trade, such as non-competition and non-solicitation of customers covenants, unless they fall within a specific statutory exception: (i) a contract for the purchase or sale of a business or its assets; (ii) a contract for protecting trade secrets; (iii) a contract provision recovering education or training expenses associated with an employee who has been with an employer for less than two years; or (iv) a restriction on executive or management personnel or each of their professional staff. As of March 1, 2022, a person who violates this statute commits a class 2 misdemeanor punishable by up to 120 days in jail and / or a fine of up to $750.

Many questions remain about the enforcement of this amendment, such as who will face ultimate liability for the employer (e.g., in-house counsel, HR staff, line managers, etc.). And though there is no indication that the new law is retroactive, Colorado employers were subject to criminal penalties for a violation of Colorado’s non-compete law even prior to SB 21-271 being passed, under C.R.S. section 8-2-115. SB 21-271 repealed C.R.S. section 8-2-115 while simultaneously inserting language into the non-compete statute itself making a violation a class 2 misdemeanor. It remains to be seen whether this is simple statutory consolidation, or a signal that Colorado plans to increase enforcement of violations of its non-compete statute. Employers should review their non-compete agreements and internal policies regarding which employees are required to sign such agreements to make sure they are in compliance with this new law.

Continue Reading The Only Constant is Change: Recent (and Potential) Changes in State and Federal Non-Compete Legislation

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On March 30, Governor Jay Inslee signed SB 5761, amending the Washington Equal Pay and Opportunity Act, to require all employers with 15 or more employees to disclose the wage scale or salary range along with a general description of all benefits and other compensation in every job posting. Beginning January 1, 2023, many Washington employers must make affirmative compensation-based disclosures to both applicants and employees.

With this requirement, Washington joins Colorado (read more here) and New York City (read more here) in mandating such public disclosures in job postings. While a number of other states (e.g. California, Connecticut, Maryland and Rhode Island) require disclosure of salary information to job applicants at various points during the hiring process, this law is more far-reaching as it requires public disclosure.

SB 5761

SB 5761 revises a 2019 amendment to Washington’s 2018 Equal Pay and Opportunities Act (EPOA) that was added to include protections for applicants for employment, transfer, or promotion, expanding the EPOA’s purview beyond current employees. Per the 2019 amendment, the law required disclosure of wage scale and salary range information to applicants only upon request. As explained above, the new law requires affirmative disclosure of wage, salary, and benefit information in job postings, however, it leaves unchanged an employer’s requirement to provide the same information to employees offered new positions or promotions within the company only when requested.

Defined Terms

“Posting” is broadly defined under the new law to include both written and electronic job solicitations. Specifically, “posting” is defined as “any solicitation intended to recruit job applicants for a specific available position, including recruitment done directly by an employer or indirectly through a third party, and includes any postings done electronically, or with a printed hard copy, that includes qualifications for desired applicants.”

Neither “wage scale or salary range” or “benefits and all other compensation” are defined or described. Hopefully, future guidance from the state will address these open issues.

Violations

Under the EPOA, job applicants and employees may be entitled to certain damages and other remedies, potentially including reasonable attorneys’ fees and costs, for violations of the statute.

Takeaways

Because the EPOA Amendments only define high-level requirements, the Washington State Department of Labor & Industries (L&I) will likely issue further guidance. We will continue to update our readers on developments.

In the meantime, here are several things employers should keep in mind:

  • Multi-state employers should consider a national policy for salary transparency given the growing number of jurisdictions requiring salary transparency.
  • Set (or review) standard salary ranges for all existing positions. Along those lines, consider an internal audit with counsel of current employee salaries to make sure there are no significant discrepancies or inequities. Equal pay claims are on the rise and this is a good time to review how you determine salary and the relevant factors you rely on for determining compensation.
  • Develop a process for consistently publishing information in connection with internal and external job postings.
  • Beyond just job postings, review any other related human resources documents (e.g., job descriptions and compensation policies) to ensure that any salary representations are consistent with the salary range set for a given position.
  • Last, be sure to train supervisors, managers, compliance personnel and human resources professionals on the implications of the new law.
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Employers across the US are requiring employees to return to the brick and mortar workplace as COVID cases drop, and are looking forward to having employees work together again face-to-face. But employers beware: employees have had little in-person interaction with their colleagues over the past two years, and some employees who were onboarded during the pandemic have only met their coworkers virtually. Employees returning in-person may be rusty when it comes to interacting with others in the same physical space, increasing the risk that lines will be crossed into inappropriate or unlawful behavior. What should employers do as employees return to the office to try to keep claims of discrimination and harassment to a minimum?

  1. Update the company’s anti-discrimination and anti-harassment policies

With a focus on health and safety measures such as mask mandates and vaccine policies for the last two years, updating anti-discrimination and anti-harassment policies may not have been front of mind. But employers should review and update these policies now to ensure they comply with any newer laws in the jurisdictions where they have employees-such as Illinois’ Public Act 102-0419, effective January 1, 2022, which specifies that disability discrimination in Illinois now includes discrimination against an individual because of their association with a person with a disability. Updated policies should be distributed to employees, who should be required to acknowledge in writing that they have received and understand them.

  1. Train employees that the company prohibits discrimination and harassment–and requires respect

Employers should also train employees on the company’s anti-discrimination and anti-harassment policies-especially before employees who have been working remotely for months or years return-to increase awareness of what is and is not appropriate workplace behavior. In one study, employees who received sexual harassment training were more likely to indicate that unwanted sexual gestures, touching, and pressure for dates are sexual harassment. Awareness of what is considered unacceptable behavior can help employees think twice before acting, and training showing specific examples of discrimination and harassment-such as actors portraying behavior that could be discrimination or harassment-may help employees understand behavioral boundaries.

Employers should ensure the training covers “to the moment issues” related to discrimination and harassment that may impact the workplace. For example, on March 18, 2021, the US House of Representatives passed the Creating a Respectful and Open World for Natural Hair Act (CROWN Act) which would prohibit discrimination based upon hairstyles in employment (as well as in public accommodations, housing, and other venues). Several states already have similar laws in place, including California, New York, Washington and Delaware. Even if the CROWN Act stalls at the federal level, training employees to respect each other-including each other’s hairstyles-can reduce complaints of discrimination.

Another example is microaggressions in the workplace. A recent Future Forum study indicated that only 3% of Black professional workers (compared with 21% of white professional workers) wanted to return to the office full time post-pandemic, after finding they faced fewer microaggressions from colleagues while working remotely. Aside from diversity and inclusion training (which many employers offer to employees), training all employees on the importance of respect in the workplace can keep all employees feeling welcome, included and valuable-whether they’re working remotely or in-person.

Employers should also ensure the training:

  • Explains the company’s structure for reporting concerns of discrimination or harassment
  • Emphasizes that the company prohibits retaliation for making reports or participating in workplace investigations of alleged harassment or discrimination
  • Describes the steps the company takes when handling complaints, and
  • Reminds employees they are subject to discipline for violation of the company’s policies relating to harassment, discrimination, or retaliation.

Some jurisdictions, including California, Connecticut, Illinois, Maine, New York State and New York City require employers to train employees on workplace harassment. But even if training is not required, employers should train employees before they return to the office-and regularly thereafter-to remind employees what inappropriate behavior looks like, how to report it, and the consequences for not following company policy.

Continue Reading Returning Employees to the Workplace? Consider These Tips to Minimize Discrimination and Harassment

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Many thanks to our Franchise, Distribution & Global Brand Expansion  colleagues Abhishek Dubé, Kevin Maher, and Will Woods for co-authoring this post.

Massachusetts’ independent contractor statute applies to the franchisor-franchisee relationship and is not in conflict with the franchisor’s disclosure obligations under the FTC Franchise Rule (the “FTC Rule”), according to the Massachusetts Supreme Judicial Court’s decision on March 24, 2022 in Patel v. 7-Eleven, Inc., No. SJC-13166, 2022 WL 869486 (Mass. Mar. 24, 2022) answering a certified question from the US Court of Appeals for the First Circuit. What does this mean for franchisors in Massachusetts? They cannot rely on required compliance with the FTC Rule to exempt them from Massachusetts’ independent contractor statute (G. L. c. 149, § 148B) and ensuring their franchisees do not cross the line to “employee” status when Massachusetts’ independent contractor ABC Test is applied.

The Franchisees’ Argument, Massachusetts’ ABC Test and the FTC Franchise Rule

7-Eleven franchisees filed suit in Massachusetts Superior Court, alleging they were 7-Eleven employees instead of franchisees, and that they were misclassified as independent contractors in violation of Massachusetts’ independent contractor statute, as well as the Massachusetts’ wage act (G. L. c. 149, § 148) and minimum wage law  (G. L. c. 151, §§ 1, 7). On the one hand, the franchise agreements classified the plaintiffs as independent contractors, and instead of receiving a “regular salary” under the agreements, each plaintiff could draw pay from the store’s gross profits after paying various fees required by the franchise agreement to 7-Eleven for the privilege of doing business with it. Patel v. 7-Eleven, Inc., 8 F.4th 26, 28 (1st Cir. 2021). On the other hand, the plaintiffs were “obligated to operate their convenience stores around the clock, stock inventory sold by 7-Eleven’s preferred vendors, utilize the 7- Eleven payroll system to pay store staff, and adhere to a host of other guidelines.”  Id.

The case was removed to the US District Court for the District of Massachusetts. The judge allowed summary judgment in favor of 7-Eleven, concluding that Massachusetts’ independent contractor statute did not apply to franchisee-franchisor relationships because there is an “inherent conflict” between the independent contractor statute and the FTC Rule. Patel v. 7- Eleven, Inc., 485 F. Supp. 3d 299, 309 (D. Mass. 2020). The plaintiffs appealed, and the US Court of Appeals for the First Circuit certified the question to the Massachusetts Supreme Judicial Court, asking whether the three-prong test for independent contractor status set forth in Massachusetts’ independent contractor statute applied to the relationship between a franchisor and its franchisee where the franchisor must also comply with the FTC Rule, and noting the apparent conflict between the Commonwealth’s independent contractor statute and the so-called “exerting control” prong of the FTC Rule.

Massachusetts’ ABC Test

The Court found the Massachusetts’ independent contractor statute does not limit “employees” to include only individuals under the control and direction of a would-be employer. Instead, the statute allows a presumption that an individual “”performing any service” for a putative employer is considered an “employee” for purposes of the wage statutes. (G. L. c. 149, § 148B.)

Once the individual has shown the performance of services for the putative employer, the alleged employer can rebut the presumption by establishing each of the following three prongs by a preponderance of the evidence (known as the “ABC test”):

  1. the individual is free from control and direction in connection with the performance of the service, both under the individual’s contract for the performance of service and in fact;
  2. the service is performed outside of  employer’s usual course of the business; and
  3. the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

If the alleged employer fails to show any one of these criteria, the individual is an employee for purposes of Massachusetts’ wage statutes (and entitled to the protections provided by them), but the first prong–the “free from control and direction” prong–was the one particularly at issue in the certified question.

The FTC Franchise Rule

The Court described the FTC Rule as not concerning employee misclassification, but instead a rule requiring pre-sale disclosure to combat deception in the sale of franchises, including misrepresentations related to the costs to purchase a franchise and the terms and conditions under which a franchise would operate. A franchisor’s failure to provide presale disclosures proscribed by the FTC Rule to a prospective franchisee is considered an unfair or deceptive act or practice in violation of section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1), and the FTC Rule prohibits a franchisor from making unilateral, material alterations to the terms and conditions of the franchise agreement without providing timely notice to the franchisee.

The Court noted that under the FTC Rule, the disclosure requirements apply to, among others, “franchisors,” including “any person who grants a franchise and participates in the franchise relationship.” 16 C.F.R. § 436.1(k). And a “franchise” is a continuing commercial relationship where, inter alia, the franchisor “will exert or has authority to exert a significant degree of control over the franchisee’s method of operation, or provide significant assistance in the franchisee’s method of operation.” 16 C.F.R. § 436.1(h)(2).10. As such, according to the Court, under the FTC Rule, a franchisor triggers required disclosures when it elects either (i) to exert a significant degree of control over the franchisee’s method of operation, or (ii) to provide significant assistance in the franchisee’s method of operation.

The Court: No Conflict Between the “Free from Control and Direction” Prong of the ABC Test and the FTC Rule

The Court found there was nothing in the statutory construction or the legislative intent of the independent contractor statute to exempt the franchise relationship from the ambit of Massachusetts’ independent contractor statute-application of the criteria for identifying independent contractors.

The Court also found there was no conflict between the first prong of Massachusetts’ ABC test and the FTC Rule, pointing out:

  • The FTC Rule is a pre-sale disclosure rule that does not regulate the substantive terms of the franchisor-franchisee relationship.
  • A franchisor does not need to exercise any particular degree of control over a franchisee to comply with the FTC Rule’s disclosure requirements. Rather, the FTC Rule establishes rules for when the franchisor chooses to exercise a certain degree of control.
  • Disclosure requirements under the FTC Rule can be triggered even without the franchisor exercising any control over the franchisee’s method of operation if the franchisor provides “significant assistance” in the franchisee’s method of operation.

“The Two Tests Are Not the Same”

The Court also addressed the certifying court’s concern that a franchisor electing to exercise a “significant degree of control over the franchisee’s method of operation” might not be able to show that the individual is “free from control and direction in connection with the performance of the service” under the first prong of Massachusetts’ ABC Test. However, the Court stated that even where the franchisor makes that election, the FTC Rule’s disclosure obligations do not negate proper classification of employees under the independent contractor statute. Instead, a franchisor can comply with the FTC Rule to make the prescribed disclosures, and in situations where a franchisee is deemed an employee under the independent contractor statute, the franchisor can also comply with its obligations under the wage statutes.

But the Court was careful to highlight that the franchisor’s election to exercise “a significant degree of control over the franchisee’s method of operation” does not make every franchisee an employee under the first prong of the ABC Test, because the two tests are not the same: “control over the franchisee’s method of operation” does not require a franchisor to exercise “control and direction” in connection with the franchisee’s “performing any service” for the franchisor, which is the relevant inquiry under the first prong of Massachusetts’ ABC Test. The Court emphasized “significant control” over a franchisee’s “method of operation” and “control and direction” of an individual’s “performance of services” are not necessarily coexistent.

And in response to 7-Eleven’s argument that applying the ABC test to franchise relationships would result in all franchisees being employees under the ABC Test, the Court noted that the court and courts in other jurisdictions had previously applied the ABC Test to franchising relationships, “yet franchising continues in the Commonwealth.” Patel v. 7-Eleven, Inc., No. SJC-13166, 2022 WL 869486, *24.

Key Takeaways

Patel is not the end for Massachusetts franchisor-franchisee relationships, but does provide some pointed guidance. If franchisors are careful to craft and implement franchise agreements without directing and controlling how the franchisee performs services, franchisors that have more typical structures should be able to maintain a proper franchisor-franchisee relationship and avoid becoming inadvertent employers–or coming within the ambit of the Massachusetts wage law and wage act.

The Court provided some “[a]dditional guidance,” which included a couple of “take home” points:

  • Nothing in the independent contractor statute prohibits legitimate franchise relationships among independent entities that are not created to evade employment obligations under the wage statutes, but referencing the Attorney General’s fair labor and business division Advisory 2008/1 at 5, the Court highlighted that “[t]he difficulty arises when businesses are created and maintained in order to avoid the [independent contractor statute].”
  • Distinguishing between legitimate arrangements and misclassification requires examination of the facts of each case, beginning with a threshold determination whether the putative employee “perform[s] any service” for the alleged employer–which is not satisfied merely because a relationship between the parties benefits their mutual economic interests, and is not satisfied by required compliance with federal or state regulatory obligations in isolation.

Under any standard, an accidental misstep could have the unintended consequence of converting a franchisee into an employee. Franchisors in Massachusetts and elsewhere should work with counsel to review both their franchise agreements and implementation and supervisory practices to avoid inadvertent conversion of a franchise relationship into an employment one.

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Last week, New York City employers received more clarification on New York City’s new salary disclosure law (Local Law 32 for 2022, the “Salary Disclosure Law,” which we previously blogged about here). The New York City Commission on Human Rights (NYCCHR) released a Fact Sheet providing more details on employers’ obligations under the Salary Disclosure Law, which requires NYC employers with four or more employees to disclose in job postings – including those for promotion or transfer opportunities – the minimum and maximum salary offered for any position located within New York City beginning May 15, 2022.

The Fact Sheet answers questions including:

Does this new law apply to my job postings?

The Fact Sheet clarifies that

  • The four employees (or one or more domestic workers) that make the workplace covered under the law do not need to work in the same location, and do not need to all work in NYC. As long as one of the employees works in NYC, the workplace is covered.
  • Employment agencies are also covered by the new law, regardless of their size.
  • The new law does not apply to temporary help firms seeking applicants to join their pool of available workers–but employers who work with temporary help firms must follow the new law.

Which job listings are covered by the new law?

Any advertisement for a job, promotion, or transfer opportunity that would be performed in New York City is covered by the new law. Notably, “advertisement” is defined as a written description of an available job, promotion, or transfer opportunity that is publicized to a pool of potential applicants (regardless of the medium of dissemination). Further, the new law does not require employers to use advertisements when hiring. However, if the employer chooses to advertise, it must comply with the disclosure requirements.

Covered employers must follow the new law when advertising for positions that can or will be performed, in whole or in part, in NYC–whether from an office, in the field, or remotely from the employee’s home.

What information must be included in covered job advertisements?

Employers must state both the minimum and maximum salary they in good faith believe (i.e. honestly believe) at the time of the posting they are willing to pay for the advertised job, promotion, or transfer opportunity.

  • The salary range cannot be open ended.
  • If an employer has no flexibility in the salary they are offering, the minimum and maximum salary may be identical–for example, both the minimum and maximum salary can be “$20 per hour.”

“Salary” includes the base wage or rate of pay, regardless of the frequency of payment–meaning it could include an hourly wage of $15 per hour or an annual salary of $50,000 per year. But, salary does not include other forms of compensation or benefits offered in connection with the advertised job, promotion, or transfer opportunity, such as employer-provided health insurance, paid or unpaid time off work, the availability of contributions towards retirement or savings funds (such as 401(k) plans or employer funded pension plans, overtime pay, commissions, tips, or bonuses).

Employers can, but aren’t required to, include additional information in advertisements about benefits and other forms of compensation offered in connection with the job, promotion, or transfer opportunity.

How will salary transparency protections be enforced?

The Fact Sheet states the Commission on Human Rights accepts and investigates complaints of discrimination filed by members of the public. In addition, the Law Enforcement Bureau also initiates its own investigations based on testing, tips, and other sources of information.

Employers and employment agencies who are found to have violated the New York City Human Rights Law (NYCHRL)–including the Salary Disclosure Law–may have to pay monetary damages to affected employees and civil penalties of up to $250,000. Additionally, covered entities may be required to amend advertisements and postings, create or update policies, conduct training, provide notices of rights to employees or applicants, and engage in other forms of affirmative relief.

The pending bill to amend the Salary Disclosure Law

Though employers are ramping up to comply with the law’s May 15, 2022 effective date, on March 24, 2022, a bill was  introduced to amend the Salary Disclosure Law to push the effective date of the law back to November 1, 2022, and to:

  • Exclude employers with fewer than 15 employees from coverage (as opposed to the law’s current threshold of four employees).
  • Clarify that the law applies to employees paid hourly or through a salary.
  • Clarify that the law does not apply to general notices that an employer is hiring without reference to any particular position, or to positions that are not required to be performed (at least in part) in New York City.

As of March 31, 2022, the bill to amend the Salary Disclosure Law was before the Committee on Civil and Human Rights. Stay tuned on the status of the pending amendment, and for this and all of your employment needs, contact your Baker McKenzie employment attorney.

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Whether you need information about a specific US visa type, or are looking for a high-level overview of employer obligations related to the movement of foreign nationals under US immigration and employment law, this handbook covers a wide range of topics and serves as a go-to, desk-side guide for US employers.

The publication is available in hard copy to North America recipients or by request through your Baker McKenzie attorney. The electronic (pdf) version is available to everyone. Click here to request your complimentary copies for yourself and your colleagues.

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The writing is on the wall: remote work is here to stay. According to data collected by Ladders, three million professional jobs in the US went permanently remote in the fourth quarter 2021 alone. By the end of 2021, 18 percent of all professional jobs in the US were remote. Ladders projects that number will be close to 25 percent by the end of 2022. Of course, this leaves employment lawyers and HR professionals wondering — what employment laws apply to our distributed workforce?

One particularly thorny issue facing employers in this context is the permissibility of post-termination non-competition agreements. Non-compete laws and their requirements differ greatly from state to state. For example, in Illinois, one of the requirements is that the employee must earn at least $75,000 annually in order to enter into an enforceable post-termination non-compete, but in Oregon, that minimum annual income threshold increases to $100,533 — and that same employee would be subject to no income threshold if Missouri law applied. On the other hand, in Colorado, where post-termination non-competes are generally unlawful, the employer could soon face misdemeanor criminal liability for seeking to enforce an unlawful post-termination non-compete against any employee, and in California, the employer could be exposed to compensatory and punitive damages if a claim is accompanied by other deemed tortious conduct (e.g., interference with the employee’s future employment prospects by seeking to enforce the unlawful agreement).

In this post, we analyze how remote work further muddles the already complicated landscape of post-termination non-competes and how employers can best navigate this complex backdrop.

What law applies? Guidance from recent case law

One issue arising out of remote work is knowing what state’s law will apply when it comes to the enforceability of non-compete restrictions. With remote work, long gone are the days where an employer can be relatively certain that the state where an employee is located at the beginning of the employment relationship will be the same state that employee is living and working in at the end of the employment relationship. As a result, when the need to enforce non-compete restrictions arises, the parties may dispute what state’s law should apply to the non-compete (e.g., the state where the employee was located when they entered into the contract, the state where the employee began work for the employer, or the state whether the employee was living or working at the end of the employment relationship).

Continue Reading Navigating The Intersection Of Remote Work And State-Specific Post-Termination Non-Compete Laws

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On March 15, 2022, the US Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued a new directive putting federal contractors on notice that it will more closely scrutinize their pay equity audits. Making headlines, the directive states that federal contractors are expected to hand over information about their internal pay analyses when being audited by the office, including documents that are protected by the attorney-client privilege and/or work product doctrine.

Background

Executive Order 11246 requires affirmative action and prohibits federal contractors from discriminating on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin. Contractors also are prohibited from discriminating against applicants or employees because they inquire about, discuss, or disclose their compensation or that of others.

As part of their affirmative action obligations, supply and service contractors are required to perform an in-depth analysis of their total employment practices to determine whether and where impediments to equal employment opportunity exist. This includes conducting an in-depth analysis of their compensation systems to determine whether there are gender-, race-, or ethnicity-based disparities, as provided in 41 CFR 60-2.17(b)(3).3.

To comply with the regulations, most companies doing business with the federal government  conduct an evaluation of their pay practices for potential gender, race, or ethnicity-based disparities.  Oftentimes, these analyses are performed with the help of outside counsel who provides legal advice regarding, among other things, compliance with the requirements enforced by OFCCP. And, until now, these pay audits have been considered privileged and confidential.

Impact of the new directive

During a compliance evaluation, a supply and service contractor is required to provide OFCCP with compensation data. In addition to requesting additional compensation data, interviews, and employment records, the OFCCP is now making explicit that it may also seek the contractor’s evaluation under § 60-2.17(b)(3), which the OFCCP calls the “pay equity audit.”

Continue Reading OFCCP Emboldened To Demand Contractors’ Internal Pay Analyses